Executive Summary
This case study focuses on identifying fraudulent issues taking place in the given four situation of Forensic Accounting. It identifies the issue on hand for every situation and goes further to discuss the in details the presence of elements such as coercion, collusion, and concealment. Nevertheless, the paper utilizes the fraud triangle to explain how the fraudulent acts are committed. The conclusion for each situation discusses the possible ways of addressing the issues being identified.
Introduction
Fraud have been on rise in forensic Accounting creating path for more investigations in order to identify ways in which these frauds arise and suggest possible ways of addressing these issues to ensure efficiency in organization and financial institutions. It is within this context that this paper arises to show some of the ways through which fraudulent acts are committed and various elements which accelerate these unlawful acts. Fraud can be taken to mean any unlawful act committed by management or employees in order to satisfy their financial interests (Zimbelman, 2012).
Following the increased frauds in Forensic Accounting, many firms are looking forward to strengthen their control systems in order to capture frequently occurring frauds. In addition, Forensic Accountants have been exposed to the knowledge of resolving civil disputes and other related criminal prosecutions related to financial crimes. Nevertheless, many firms have subjected their accountants to investigations of employee related financial crimes, professional negligence, business valuation and disputes and financial statement fraud (Albrecht and Albrecht, 2003).
Situation 1
As Mary’s financial planner I would advise her to take time before engaging herself to this great opportunity as it may seem to her. Financial transactions need one to take time to investigate about the risks available before accepting the deal. The arrangement between Mary and Bronwyn is not well defined implying that they may lead to fraud. The question in hand is that will Bronwyn be able to secure a position for Mary after she pays $50,000 for intellectual property up front. Will Mary be able to access the company’s events after she pays the amount? There is something hidden in the arrangement which may lead to defection of the terms.
Fraud Triangle
With reference to the fraud triangle, there may exist an element of perceived opportunity whereby Bronwyn may want to engage Mary to a deal since she is a competent sales personnel with an hidden agenda of benefiting from the money she pays for the intellectual property. Nevertheless, there may also arise an element of perceived pressure arising on the side of Bronwyn. Since Bronwyn wants her company to grow she may be looking for other complements which may help her in achieving the growth. Finally, rationalization may be explained in the sense that Bronwyn has not provided clear information about the deal implying that there is something wanting she is hiding from her friend Mary (Albrecht and Albrecht, 2003). The discussed issues in this paragraph can be summarised in the diagram below.
Arguing from the fraud triangle point of view, Bronwyn may be forced to commit fraud by the pressure coming from the need to have her company grow to a foreseeable future. Owning to the fact this is a new company, Bronwyn is focusing on making the company develop further. Nevertheless, she also uses the opportunity that is the Mary’s competence in sales so as to improve the operations of the company.
The issues and elements of the fraud can be explained using the triangle above. In this situation, there is an element of collusion in the sense that Bronwyn colludes with Mary to employ three sales people for the company with an aim benefiting from the company. This was geared towards improving the services of the company where else Mary was concerned on being a warded a position in the company. Collusion arises only when there are two or parties with secret arrangements to gain something from an organization or by defrauding others their rights. On the other hand, the element of coercion may arise if Bronwyn wants to compel Mary to pay the amount. Nevertheless, if the deal is true then the element of coercion may not arise.
Moreover, there is element of concealment in this arrangement whereby Bronwyn hides the terms and conditions of the arrangements. She only explains to her friend the positive side of the arrangements but fails to explain the negative side of it. That is what will happen if Mary pays for the intellectual property up front and fails to access the company’s events and also if Bronwyn fails to secure a sales person position in the company. If Bronwyn had provided this terms then the element of concealment would not have aroused.
In this case, there is a red flag indicating concern in the security of the transaction. The red flag arises in the sense that, Bronwyn has failed to provide the terms and conditions for the deal. The deal does not define whether Mary will be compensated if she pays the intellectual property and fails to be awarded the position. This is an indicator of fishy deal arising which pose a substantial amount of threat in the transaction.
Solution to the fraud
In any deal there should exists clear terms and conditions. For the deal to be abiding in law, then the parties concerned should have had intentions of being legally enforceable at the time of agreeing the terms for the deal. If this terms and conditions avail then the deal becomes lawful and if breached then one can stand to claim in a lawsuit. In so doing parties become assured of an enforceable deal and could willingly enter into agreements for the deal arrangements without any fears. This also plays a vital role in helping reduce the chances of fraud occurring.
Situation 2
Bob’s actions amount to fraud this is because he used his powers as a personnel officer for his personal enrichment by endorsing a ghost worker in the ABC Company payroll and paying the salary to his own account. As a result, this increased the wages costs for the company lowering its profitability. In this situation, Bob hides the issue by not removing the name of the resigning employee on the company’s systems thus allowing the systems to capture the employee as still a worker of the ABC Company.
Perceived Pressure Rationalization
Using the fraud triangle, it can be understood that Bob used the opportunity of the weak controls for the company to carry out the fraud. His guess was that he could not be recognized since he thought with weak internal controls nobody would be able to recognize his deals. In addition, it can be deduced that Bob had financial constrains which may have forced him to engage himself into fraud. This explains the perceived pressure as indicated by the fraud triangle. On the rationalization part of the triangle, Bob may have committed this unlawful act due to a feeling that he was underpaid and wanted to make up for what he thought was good for him.
Reasons for committing the fraud
The corporate governance is related to this fraud in that, the fraud involves a big officer of the company. The management of the company has failed to build strong internal control systems which could help in identifying fraud as well as reducing the chances of it happening. There is also negligence on the practice of corporate governance since there should be regular payroll audit for the company by the internal auditors. If this was the case then the fraud could have been detected early before it led to much damage.
Issues and elements of the fraud The triangle below plays a role in helping us to describe the issues, elements and the red flags surrounding Bob’s fraud.
Concealment Conversion
In this case there is no element of collusion between Bob and this employee. This is because the employee did not take part in the deal rather he went his own way to gain alone from the transaction. For collusion to occur there should be two or more individuals with secret arrangements to gain something from an organization by defrauding other rights. Although, the internal control systems where generally manipulated thus becoming ineffective in preventing the fraud, collusion did not arise. Nevertheless, there was no element of coercion in this case. This is because it involved one party who is Bob. For coercion to occur then there should be two parties involved whereby one party compels the other to do the unlawful act (Albrecht and Albrecht, 2003).
There was concealment in Bob’s act and this is evident in the way he hides the fraud using the internal controls of the company. Bob uses his competence to hide the fraud by failing to remove the resigned employee and changing the employee’s bank details to be his own. This act makes the all thing obscured from the view of other Company’s members and uses it to quench his selfish gains. To support this statement, it is true that the company was unable to know what had led to increased wages costs that is the reason as to why they go a mile further the to engage the external auditor to identify the problem.
The increased company’s wage cost is a clear indication of a potential red flag in the company’s internal control systems. It is unrealistic for wage costs to remain the same when actually one employee has resigned. With this taking place, there is an indicator of further threats which may arise from the weak internal control systems of the company. Thus ABC company needs to take care of this red flag before things go astray.
External auditors would play a vital role in identifying where the increased wage costs came from. In other words the external auditors have the role to detect the fraud in ABC Company. This is by reviewing the internal controls of the company following the material issues raised by the ABC management. In addition, the external auditors will have the role to identify and report the procedures they feel could possibly have led to increased wage costs. By interviewing Bob one of the company’s accounting officers on the procedure he uses to ascertain employee payroll details would be of much help in identifying the fraud in the systems (Singleton and Bologna, 2006).
In conclusion in order to control this fraud, then several measures need to be taken. First, ABC Company involves internal auditors regularly and the external auditors twice per year to conduct payroll audits. In this exercise, all the employees should physically sign and present their proper identification in order to receive their pay document. This will help the company detect any form of fraud and correct it before affecting its operations. In addition, the company should ensure that all returned W-2 forms are well scrutinized and investigated by its supervisors. Moreover, ABC Company should pay employees via their separation of duties this will help know at which department the fraud is originating. Finally, the company should keep strong internal control systems which should be regularly checked and updated to capture and fraudulent acts. Internal control systems need to be updated time to time to increase the efficiency (Singleton and Bologna, 2006).
Situation 3
Being an Accountant I would help Jane with financial advice that she should not honour the request before she ascertains the truth of matter regarding the issue. The fact that she had a relative who left some money for her is subjective and thus needs more enquiries. In addition, the message was communicated to her by unknown relative implying that this could be any person even a non-relative. This could be a scandalous transaction aimed at quenching ones selfish gains. My advice as an a professional to Jane would be to visit the country, then make a follow up about the issue to ensure the truth of matter then after doing so, pay the duties and taxes and wait for the money in her country.
How the fraud may be committed
The fraud in this situation is associated with internet crime which has been very rampant in Australia. This can be taken as a spam or internet banking fraud which involves hackers from different countries using the online technology to rob others of their money by transferring this money to a different bank account (Wells, 2010). The unknown relative may be one of the online hackers using the opportunity to rob Jane $50,000 through the wireless transfer. In addition, the unknown relative may be taking this opportunity to understand Jane’s bank details and use them to hack her money from her account to other account through the internet.
Presence of communication from unknown relative to Jane about money transaction deal is an indicator of red flag in the deal. For any transaction to take place, the two parties involved need to know each other well. These parties do not know each other and that’s why the situation talks about the unknown relative. This red flag opens the door for money laundering activity in the deal. It is insensible to send money to unknown person to facilitate the payment of duties and taxes for someone. In addition, there is lack of clear information about the gift of money left for Jane by her relative.
Issues and elements of the fraud
Although it might be true about the whole issue but the unknown relative may be hiding something in relation to the same. In this issue there is an element of coercion because the unknown relative may be taking an advantage to compel Jane to send money when actually there is nothing to gain from her dead relative. Nevertheless, there is also an element of collusion in this case and this arises if we take the side that the unknown relative wants to fraud Jane (Albrecht and Albrecht, 2003). This implies that there is are two or more people who know about the whereabouts of Jane and have come up with a plan which is unlawful to conspire Jane to send money when actually there is nothing about her inheritance from her relative.
The fact that Jane and the unknown relative are in different countries create a waylay for fraudulent act. The deal is not legally enforceable because the parties first do not know each other and also they do not have the intention to be legally binding at the time of agreeing about the arrangements of the transactions. There are high chances that the unknown relative together with others who we might not know may be out to benefit from this transaction. This may also be seen as a business done by such people to get money from other people an act which is unlawful.
Applying the idea of fraud triangle, there is an element of perceived opportunity in this situation. The opportunity arises in the sense that the unknown relative may have seen an opportunity to make money from Jane and that is why she is using the idea that Jane needs to send some money to enable the transaction take place. She should have suggested to Jane to first visit the country and confirm this issue before then make a move towards attaining the amount if there is truth is the deal. In addition, there is an element of perceived pressure arising from the side of the unknown relative. May be she is in a financial crisis and wants to use this opportunity to improve her financial status. Finally, rationalization may also be a subject in this situation by arguing that there is something hidden in the deal since if there was truth in it, Jane could have been allowed to visit the country first before she makes any move towards acquiring her inheritance gift from her dead relative (Singleton and Bologna, 2006).
On the other hand, she needs to make consultation with the small money Australia which plays a vital role in managing money transfers for its consumers with a strong aim of reducing the increased cases of money laundering. Through small money Jane will be advised on various ways of managing such situation whenever they arise. Through small money Jane will able to know whether this deal was a money laundry scheme then act accordingly.
Situation 4
Although it seems to be a great opportunity great care has to be taken by Manuel. My advice to him is that he should reject this offer. Issues pertaining bank transactions are very sensitive and requires one to handle them with great care. This may amount to fraud if Tony wants to rob Manuel following the fact that he will know his bank details after the transaction. If this issue was genuine the Tony could have advised his friend to open a bank account in Brisbane to where his money could be transferred. Opening an account could not take him much other than providing his personal information. Therefore this in one way may lead to fraud if Tony and his friend had bad intentions about Manuel’s money in the bank.
Failure for the Tony’s friend to physically present himself before Manuel to facilitate the transaction is a clear indication of red flag in the deal. In it is abnormal to provide ones bank details to unknown person. Moreover, this opens the door for money laundering scheme for Tony and his friend. Nevertheless, Tony should have advised his friend to open a bank account in Australia which could only take him a day. All this provides the sense of insecurity in the deal thus it amounts to red flag.
This situation also breaches the telecommunication act of 1997 part 6 on customer privacy whose concern is on development of industry codes and standards in relation to consumer protection and privacy areas. In addition, part 13 of the same act provides that carriers and carriage service providers need to come up with records for every disclosure of personal information (Telecommunication act of 1997, 1997). This was not the case for Tony, his friend and Manuel whose information disclosures where said rather than being put into records. In addition, Tony should have presented his friend to make the communication to Manuel so as to make the deal enforceable.
The element of collusion is evident in this situation between Tony and his friend towards Manuel. There may exist a secret between the two to defraud Manuel of his money. The big question is that why is it that they cannot open an account in Brisbane and have the money transferred to that account. Nevertheless, the element of coercion is also evident in that both Tony and his friend may be using the 10% commission to win Manuel’s curiosity so as to allow them quench their selfish gains when actually they did not mean to give him the money.
This may be a catalyser to compel Manuel to allow them know his bank details thus defraud him of his money (Golden et al, 2006).
Moreover, element of concealment is also evident in this situation. Tony and his friend might be hiding their shoddy deal by proposing a 10% commission to Manuel to blind him from thinking about much about the issue. This act qualifies to be concealment between the two friends to take advantage of Manuel.
In applying the fraud triangle, there is an element of perceived opportunity arising from Tony and his friend. They may collude to know Manuel’s bank details with hidden agenda rob his money. Nevertheless, there may be an element of perceived pressure in the sense that Tony and his friend may be in financial difficulties thus looking for a way to help them settle the issue. Finally, rationalization may arise in the sense that tony and his friend may feel that their friend has more money thus use this opportunity to benefit (Singleton and Bologna, 2006).
Money laundering is a serious crime which is on increase in Australia. If Manuel ends up in a money laundry then he should inform Australian Transaction Reports and Analysis Centre which is the anti-money laundering body in Australia (Exposure Draft: Anti Money Laundering and Counter Terrorism Financing Bill 2006, 2006). Nevertheless, it is essential for one to take time and think critically before engaging himself to issues which may be disastrous to his proceedings. Before accepting such deals one should ensure that the deal is legally enforceable. This only happens when there is an intention to be legally binding at the time of agreeing about the arrangements. When this happens then the party is secure because any breach of the agreements would result to court cases which can be justified to avoid damages.
References
Albrecht, W. S., and Albrecht, C. O., 2003. Fraud examination. Mason, OH: Thomson South-Western.
Exposure Draft: Anti Money Laundering and Counter Terrorism Financing Bill 2006., 2006. Canberra: Attorney-General's Dept..
Golden, T. W., Skalak, S. L., and Clayton, M. M., 2006. A guide to forensic accounting investigation. Hoboken, N.J.: J. Wiley.
Singleton, T., and Bologna, J., 2006. Fraud auditing and forensic accounting (3rd ed.). Hoboken, N.J.: Wiley.
Small money in Australia. Retrieved from
The Telecommunication act of 1997,(Cth). Retrieved from
Wells, J. T., 2010. Internet Fraud Casebook The World Wide Web of Deceit.. Sydney, N.S.W.: John Wiley & Sons.
Zimbelman, M. F., 2012. Forensic accounting (4th ed.). Australia; United Kingdom: South- Western/Cengage
